FOREIGN ENTRY INTO U.S. SERVICE INDUSTRY BY TAKEOVERS AND THE CREATION OF NEW FIRMS

This paper analyzed the differences in foreign direct investment (FDI) determinants of various sectors using the Knowledge-capital (KC) model framework. Specifically, it compared the differences in the influence of FDI determinants between the manufacturing and service sectors. In the empirical analysis of the Korean outward FDI, the study found that service FDI is likely more demand-seeking than manufacturing FDI. Moreover, service FDI does not tend to be largely affected by trade impediments, caused by the differences in idiosyncratic features between the two sectors. Although past manufacturing FDI is expected to lead current producer service FDI, which facilitates production of manufacturing goods, the Korean manufacturing FDI is not complementarily related to the Korean producer service FDI. Given the rapid growth of the global service sector, the Korean government needs to promote the overseas expansion of service companies through the reinforcement of the overseas expansion support system such as providing sufficient foreign market information, supporting R&D activities for new service development and quality upgrade, and improving the customized financial support system.

Nearly all developing countries actively seek capital and technology from the advanced countries. Although private direct foreign investment (mainly in the form of multinational enterprise) is viewed with ambivalence by many developing countries, it is nonetheless true that direct investment remains a substantial source of capital and is sometimes the only source of specific technologies. Indeed, given the slow growth in official external assistance, developing countries are becoming more, not less, dependent on direct foreign investment. While disbursements of official development assistance by the OECD countries rose 43% from 1961 through 1970, direct investment flows rose almost 90% over the same period. In the later year, the flow of direct investment was more than two-fifths of all official assistance, $3.2 billion compared to $7.8 billion.1 Furthermore, the United States and other major capital exporting countries would prefer, for economic as well as ideological reasons, to channel more of their capital outflows to developing countries through private investment. It is highly probable, therefore, that developing countries will continue to rely on direct foreign investment in the foreseeable future to carry out their development programs. It is against this background that the present study seeks to identify the empirical determinants of direct foreign-investment flows in the manufacturing sectors of developing countries. Our purpose is to select from the many economic, social, and political features of a developing country those features that are critical to making that country attractive or unattractive to private foreign investors. Available empirical studies are limited

<p><em>Whether Foreign Direct Investment (FDI) is beneficial to host country growth or not, it is a question debated since a long time (Acaravci & Ozturk, 2012). This paper will examine the flow of FDI and their impact on economic growth in the Republic of Kosovo. This correlation between FDI and economic growth will be studied through regression (Quantile Regression Median). The results of the study will be obtained using multiple regression to evaluate the effect of FDI on the economy, using secondary annual data from 2007 to 2017. In addition to the basic model to be used to assess the impact of FDI on total growth amount, we have also decomposed them into the second model: FDI in manufacturing and FDI in services as well as other FDI. The research results show that the impact of total FDI and FDI in manufacturing is negative and insignificant while the impact of FDI in services and other FDI is positive but insignificant to economic growth in Kosovo. Due to the importance of FDI, as an important source of capital in a transition country such as Kosovo, these results are informational for decision-makers to improve policies in order for the country to become more attractive in attracting FDI. </em></p>

Does the worldwide shift of FDI from manufacturing to services accelerate economic growth? A GMM estimation study

Based on matching techniques in combination with a difference-in-difference estimator, this paper estimates the effects at home of initiating production abroad through the establishment of a foreign production affiliate. The analysis covers manufacturing and service firms active in France during the period 1987–1999. We show that the motivation to start producing abroad is an important determinant of its impact at home. Market-seeking foreign direct investment (FDI) in manufacturing is associated with significant scale effects, resulting in job creation. By contrast, factor-seeking FDI in manufacturing has no significant effect on employment. However, there is some evidence that this type of FDI is associated with technology effects, in the form of greater capital-intensity and efficiency, as well as larger exports. Finally, FDI in service sectors is associated with significant positive employment effects, presumably reflecting the importance of the market-seeking motive in these sectors.

Foreign Direct Investment in Health Services

Purpose: Our study seeks to measure the impact of Foreign Direct Investments (FDI) in the services sector on the productivity of municipalities in the state of São Paulo. Theoretical framework: FDI in the services sector has become increasingly important for emerging economies due to the spillover effects, which can boost regional economic development. Methodology/Approach: This study uses econometric modeling to measure the impact of services FDI at the municipal level in the state of São Paulo, the most FDI-intensive region in Brazil. To do so, this study employs an unbalanced panel of data that includes all FDI-receiving municipalities in the state between 2010 and 2016. Findings: Our results point to a positive relationship between FDI in services sectors and municipal productivity. Research, practical & social implications: This study outcomes offer valuable perspectives for the formulation of public policies aimed at attracting foreign investments. They also have important implications for the service sector and could be a reference for future studies on the subject. Originality/ Value: This study addresses FDI in emerging countries, an important discussion given the impact of this type of investment on economic development and social indicators. In addition, this paper expands the FDI literature beyond the manufacturing sector. Keywords: Foreign Direct Investment; Foreign Direct Investment in Services; Spillovers; Productivity.

Previous articleNext article FreePart I: Exchange RatesCapital Account Policies and the Real Exchange RateOlivier JeanneOlivier JeanneJohns Hopkins University and NBER Search for more articles by this author Full TextPDF Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinked InRedditEmailQR Code SectionsMoreI. IntroductionThere are debates about the extent to which emerging market and developing countries that have accumulated large amounts of foreign exchange reserves in the 2000s are doing so in order to undervalue their currency. However, we do not have a simple model of how a country can achieve persistent real exchange rate distortions through reserve accumulation. The main purpose of this paper is to present such a model and to use it to answer a few questions about undervaluation policies.Real exchange rate undervaluation is often presented, in policy debates, as the result of a monetary operation. For example, it is argued that the People's Bank of China (PBOC) has resisted the appreciation of the renminbi by pegging the nominal exchange rate and accumulating reserves. But pegging the nominal exchange rate is not the same thing as pegging the real exchange rate, and we know that in an environment without nominal frictions monetary policy has virtually no impact on real variables. It is unlikely, furthermore, that nominal frictions alone give monetary policy enough leverage to have a persistent impact on the real exchange rate. Standard estimates suggest that nominal stickiness is not persistent enough to induce large and persistent deviations of the real exchange rate from its flexible-price equilibrium value (Rogoff 1996; Chari, Kehoe, and McGrattan 2002). Thus, in order to achieve persistent real undervaluation, monetary policy must rely on something else than just nominal stickiness.I focus in this paper on the role of imperfect capital mobility. Imperfect capital mobility can be defined, for the purpose of my analysis, as any friction inducing a deviation from Ricardian equivalence in capital flows.1 Imperfect capital mobility could result from "natural causes," such as financial frictions that prevent the private sector from borrowing abroad, or deviations from rational expectations that mitigate or delay the private sector's Ricardian response to reserve accumulation. Imperfect capital mobility could also be policy-induced and result from capital account restrictions that are imposed by the government. The fact that the country that has accumulated the most reserves in the 2000s, China, also imposes tight restrictions on its capital account suggests that the link between the two is worth looking at. Thus, this paper will focus on the question of how the real exchange rate is affected by capital account policies, defined in a broad way as the accumulation of foreign assets and liabilities by the public sector plus all the policies that affect the private sector's access to foreign capital. However, most of my results can be extended to the case where Ricardian equivalence fails because of frictions other than capital account restrictions.In order to simplify and streamline the analysis, I use a model that is entirely real-there is no money and no monetary policy. I consider a small open economy that consumes a tradable good and a nontradable good. The government accumulates foreign assets and imposes controls on capital flows. This combination of policies allows the government to effectively control the level of net foreign assets for the country as a whole. The other properties of the model then follow in a straightforward way. The government controls the current account balance (since it is the change in net foreign assets) and therefore the trade balance. The real exchange rate, then, has to be consistent with the trade balance. Other things equal, accumulating more net foreign assets will depreciate the real exchange rate.I then use the model to look at several questions related to capital account policies and real exchange rates. How can we detect in the data that these policies influence the real exchange rate? Are there limits to the impact of capital account policies on real exchange rates and how are they determined? If capital account policies can lead to real exchange rate undervaluation, how different are they from trade protectionism? What is the welfare cost from resisting to currency appreciation? I also look at the recent experience of China through the lenses of the model.The paper is related to several lines of literature. First, it is related to the literature on global imbalances, the "global savings glut," and the "upstream" flow of capital from relatively poor high-growth countries to relatively rich low-growth countries. The problem in that literature is to explain high saving rates in emerging market economies. One line of explanation is precautionary savings against idiosyncratic risk (see, e.g., Mendoza, Quadrini, and Ríos-Rull 2009; Carroll and Jeanne 2009; or Sandri 2010). Chamon and Prasad (2010) argue that precautionary savings against idiosyncratic risk is the most likely cause of the high saving rate in China. Precautionary savings could also be against aggregate risk, in particular the risk of sudden stop (Durdu, Mendoza, and Terrones 2009; Jeanne and Rancière 2011). Capital outflows from high-growth countries could also result from domestic financial frictions as in Caballero, Farhi, and Gourinchas (2008) or Song, Storesletten, and Zilibotti (2011). A common feature of these contributions is that the saving rate is determined by the behavior of the private sector. Reserve accumulation and capital account policies play no role and it is by hap-penstance that a substantial share of foreign assets ends up being accumulated as reserves.The evidence, however, suggests that the upstream flow in capital is linked to public flows and in particular reserve accumulation (Aguiar and Amador 2011; Gourinchas and Jeanne 2011). My model explains the link between reserve accumulation and net capital flows as more than a coincidence. In equilibrium, reserve accumulation must reduce net capital inflows by reducing saving (keeping investment constant). Another way of looking at the real undervaluation policy in my model, thus, is that the accumulation of foreign assets induces "forced saving" in the domestic economy. The capital controls prevent the domestic private sector from offsetting the public accumulation of foreign assets by borrowing abroad. The model thus provides a simple explanation for the high saving rate in countries such as China.2Second, the paper is related to the literature on exchange rate undervaluation. Dooley, Folkerts-Landau, and Garber (2004) argue that China and several other emerging markets and developing countries have been resisting the appreciation of their currencies in order to promote exports-led growth, a phenomenon that they dub "Bretton Woods II." An empirical literature has studied whether real exchange rate undervaluations increase growth (see, e.g., Rodrik 2008). Policy discussions often take for granted that a country can resist the real appreciation of its currency by accumulating reserves but the literature lacks a clear model of how this comes about. In a related contribution developed independently of this paper, Ghosh and Kim (2012) show the equivalence between capital account restrictions and trade restrictions in a two-period small open economy model.Third, the paper is related to the literature about optimal capital account policies. One recent line of literature has studied the normative case for prudential capital controls aimed at smoothing the boom-bust cycle in capital flows (Bianchi 2011; Korinek 2011; Schmitt-Grohé and Uribe 2012). Another line of literature has studied the case for "mercantilist" real exchange rate undervaluations (Aizenman and Lee 2007; Korinek and Serven 2010). Costinot, Lorenzoni, and Werning (2011) study equilibrium capital account policies in a two-country model. By contrast with that literature, I take capital account policies as given and do not look at the reasons that real exchange rate undervaluation might be desirable from a welfare perspective.Fourth, the paper is a contribution to the literature on the impact of sterilized foreign exchange reserve interventions. The empirical literature until the 2000s was primarily focused on advanced economies and motivated in part by the apparent success of concerted interventions following the 1985 Plaza Accord (see Sarno and Taylor 2001 for a review). The focus of the attention has shifted more recently on how the sterilized accumulation of reserves can help emerging markets and developing countries deal with large capital inflows and resist the appreciation of their currency (see, e.g., Disyatat and Galati 2007; Adler and Tovar 2011). Adler and Tovar (2011) examine whether the impact of sterilized foreign exchange interventions for a panel of 15 economies (mostly in Latin America) covering 2004 to 2010. They find that interventions slow the pace of appreciation, but that (consistent with the model presented here) this effect is stronger for countries with more closed capital accounts. On the theoretical side, the Ricardian irrelevance result for sterilized interventions was stated by Sargent and Smith (1988), and Backus and Kehoe (1989) showed that it holds under more general conditions. However, it is possible to design realistic stochastic environments with incomplete markets in which sterilized interventions have real effects (Kumhof 2010). In the deterministic model presented here, sterilized interventions matter because of a simple policy-induced friction in international capital flows.The paper is structured as follows. Section II motivates the model by looking at the capital account policies of China. Section III presents the model. Sections IV through VII present various properties of the model and Section VIII goes back to the Chinese experience, this time examining it through the lenses of the model.II. Capital Account Policies of ChinaThe capital account is very restricted in China. On the side of inflows, foreign direct investment (FDI) is largely liberalized and even encouraged in some cases through tax incentives, but other inflows are constrained. Inward FDI in manufacturing is almost completely liberalized, with the exception of restrictions in some strategic sectors.3As for financial inflows, the financial assets that foreigners might want to invest in are equity, debt securities, and bank deposits, but their access to these assets is severely restricted. These assets are not scarce. Figure 1 reports the outstanding stocks of the different types of financial assets as shares of GDP. At $3,408 billion at the end of 2011, the Chinese stock market capitalization is significant even relative to that in advanced economies.4 The market for debt securities is less developed. The market for government bonds is not very large (about 17 percent of GDP at the end of 2010) and the local market for corporate bonds remains small and dominated by a handful of large state-owned institutions.Fig. 1. Outstanding stocks of Chinese financial assets: Bank deposits, bonds, and stock market (% of GDP, 2000–2010) Source: People's Bank of China, China Securities Regulatory Commission, Shanghai and Shenzhen Stock Exchanges.View Large ImageDownload PowerPointThe main vehicle for households' and firms' financial saving is bank deposits, which amounted to about 140 percent of GDP on average in the 2000s, and have been increasing over time. Most of those deposits are time and saving deposits that bear an interest rate.The access of foreign investors to Chinese financial assets is severely limited. For equity, two types of shares are traded in the Shanghai and Shengzhen stock markets-"A shares" that can be owned only by domestic investors, and "B shares" that can be purchased by foreigners. The value of B shares has never exceeded 3 percent of total stock market capitalization since 2000. Foreign investors can invest in financial assets other than B shares through the Qualified Foreign Institutional Investor (QFII) program. This program allows about one hundred selected foreign institutional investors to invest in a limited range of Chinese domestic financial assets. The overall quota allocated to this program has remained small and the range of investable assets limited (Lardy and Douglass 2011; Cappiello and Ferrucci 2008).5 Foreign investors cannot otherwise invest in domestic debt securities or hold bank deposits.Capital outflows are restricted too. The restrictions on outbound FDI were relaxed over the past decade as authorities have begun to view it as a valuable way to secure commodities and further integrate China into the global trading system. But Chinese investors cannot, as a rule, hold foreign financial assets. The Qualified Domestic Institutional Investor (QDII) program, introduced in 2006, allows selected domestic financial institutions to invest abroad using a structure similar to that of QFIIS, but the quota allocated to this program has remained small. The state-controlled policy banks do the bulk of China's external lending, often to accompany the FDI of state-owned enterprises.Obviously, the Chinese capital controls are not perfectly tight and there have been leakages. Chinese banks can draw down their overseas claims on international banks and the corporate and household sector can take advantage of the more liberalized current account through leads and lags in trade payments and remittances. However, the large and persistent spread between the onshore yield on the renminbi and its offshore counterpart suggest that China's existing official capital controls on inflows have been binding, especially after 2002 (Ma and McCauley 2008; Cappiello and Ferrucci 2008). Furthermore, the composition of China's capital flows and external assets and liabilities reflects the constraints imposed by the capital account restrictions. As shown in figure 2, which reports the breakdown of Chinese foreign assets and liabilities at the end of 2010, most of the foreign liabilities are accounted for by FDI and most of the foreign assets take the form of foreign exchange reserves.Fig. 2. Composition of Chinese foreign assets and liabilities (%, 2010) Source: State Administration of Foreign Exchange (SAFE).View Large ImageDownload PowerPointIt should be noted that inward FDI is not completely liberalized as it is subject to authorizations from the Chinese authorities. In principle, thus, the Chinese authorities can influence the level of FDI inflows. However, it is unlikely that this influence is used for macroeconomic fine-tuning as most of the decision-making power regarding the screening and approval of FDI is held by local governments. This being said, even if it takes FDI inflows as given, the central government can still influence total net capital inflows through reserve accumulation as long as a change in international reserves is not offset one-for-one by a change in FDI inflows. The Chinese authorities could in this way indirectly control the current account balance-a key feature of the model presented in the next section.III. ModelThe model aims at capturing in the most simple possible way the essential features of the Chinese capital account documented in the previous section. The model is deterministic and in continuous time. It features a small open economy populated by an infinitely-lived representative consumer who consumes a tradable good and a nontradable good. The utility of the representative consumer is given by where ct = c(cTt, cNt) is a function of the consumption of the tradable good, cT, and the consumption of the nontradable good, cN, which is homogeneous of degree 1. I denote by pt the price of the nontradable good in terms of the tradable good, and by qt the price of the tradable good in terms of domestic consumption. I will call qt the real exchange rate (an increase in q is a real depreciation) and by an abuse of language that is common in the literature, I will sometimes call the tradable good "dollar."The domestic consumer receives exogenous flows of nontradable and tradable goods. The budget constraint of the domestic consumer is where at and at* are the consumer's holdings of bonds, respectively, denominated in consumption good and tradable good; yTt and yNt are the country's endowments of the tradable good and nontradable good; and zt is a lump-sum transfer from the government. I will call at and at* the private sector's holdings of "domestic bonds" and "foreign bonds," respectively. The assumption that the output of tradable good and non-tradable good are endowments can be interpreted as the fact that labor is not mobile between the two sectors. I will assume, to simplify the analysis, that the consumer's psychological discount rate is equal to the interest rate, ρ = r*, but this assumption can easily be relaxed.The budget constraint of the government is where bt* and bt are the government's holdings of bonds denominated in dollars and in domestic consumption good, respectively. I call bt* "international reserves." If the government accumulates foreign assets by issuing domestic liabilities, bt is negative and -bt is the government's domestic debt.Government policy consists in the announcement of paths for public assets, (bt*, bt), that satisfy the transversality condition,The impact of government policy crucially depends on the extent of capital mobility between the country and the rest of the world. With perfect capital mobility, government policy has no effect on the domestic economy and the real exchange rate (Ricardian equivalence). This result is well known, but going through the proof will allow us to make some points that are useful for future reference.First, adding the budget constraints for the representative consumer and the government, (2) and (3), using interest parity rt = r* + qt/qt as well as the fact that the consumption of nontradable good is equal to its supply in each period, cNt = yNt, one derives the consolidated budget constraint for the country as a whole,where nt* denotes the country's net foreign assets,Second, using the first-order condition, qt = ∂ct/∂cTt, and again cNt = yNt, the real exchange rate can be written in reduced form as a function of cTt and yNt,The equilibrium under perfect capital mobility is then characterized by the following two conditions,The first equation says that the marginal utility of consuming the tradable good must be constant over time (since the dollar interest rate is equal to the consumer's psychological discount rate). The second equation is the country's intertemporal budget constraint. Together, these conditions pin down the path for the consumption of tradable good, (cTt)t≥0, and through the country's budget constraint (5), the path for the country's total net foreign assets, (nt*)t≥0, but they do not determine the individual components of foreign assets.6 In particular, an open market operation in which the government purchases reserves by issuing domestic debt has no impact on the domestic economy. This is clear if the government makes the transaction with foreign investors, since in this case nothing changes for the domestic private sector. This is also true if the government's debt is not traded internationally and must be sold to the domestic private sector. In this case, the domestic private sector simply finances the purchase of domestic government debt by selling foreign assets (or issuing foreign liabilities) to foreign investors. Government policy is irrelevant if the domestic private sector is connected to the international financial market through the frictionless trade of one asset or liability.7The situation is quite different if the access of the domestic private sector to foreign borrowing and lending is restricted. To simplify, let us consider the extreme case where the government is the only agent in the economy that can enter into financial relationships with the rest of the world Denoting by (a closed capital account).8 Let us assume that domestic government debt can be held only by the domestic private sector (at + bt = 0) and that foreign assets can be held only by the government (at* = 0). This assumption is meant to capture Chinese-style capital account policies in which the access of foreign investors to domestic financial assets and the access of domestic private investors to foreign assets are very limited. Then, the country's net foreign assets are equal to its reserves and its consolidated budget constraint can be written,By setting the path for reserves, , the government completely determines the paths for the consumption of the tradable good, , and for the trade balance, . It also determines the path for the real exchange rate, .This result is, as a matter of accounting, obvious. If the government can determine the country's total net foreign assets, then it can also determine the current account balance (the change in the country's net foreign assets) and the trade balance (the change in the country's net foreign assets minus the return on these assets). In particular, the government can induce "forced saving" in the domestic economy by forcing the private sector to buy domestic debt and by using the proceeds to buy foreign assets. With a closed capital account, the domestic private sector cannot undo this operation by selling assets to-or borrowing from-the rest of the world. Denoting by cT(q, yN) the level of tradable good consumption when the real exchange rate is q, we have the following result.Proposition 1. With a closed capital account, the government can implement any real exchange rate path, (qt)t≥0, satisfying the country's external budget constraintProof. See discussion above.Inequality (8) is binding if the stock of reserves satisfy the transversality condition as an equality,But the left-hand side of (9) could be strictly positive if the government lets the rest of the world play a Ponzi game with domestic reserves (which is equivalent to "throwing away" a fraction of the reserves, as in Korinek and Serven 2010).A realistic application of the model is the case where the government uses capital account policies to resist a real exchange rate appreciation resulting from a takeoff in the tradable good sector. One can capture this case in the model by assuming that the endowment of tradable good, yTt, increases over time. This could lead to a trade deficit if the consumption of tradable good, reflecting the anticipation of higher future tradable income, exceeds the endowment.I will assume that (for a reason outside of the model), the government tries to smooth the trade balance by limiting trade deficits, or even maintaining a surplus. This is possible if the government closes the capital account and accumulates reserves. More formally, I will define an episode of "resistance to real exchange rate appreciation" as follows.First, I denote with tilde the values of the variables in the undistorted equilibrium (with free capital mobility). For example, is the path for the consumption of tradable good when the domestic consumer has unrestricted access to foreign borrowing and lending, and is the path for foreign exchange reserves that is consistent with the undistorted equilibrium (assuming that reserves are the only foreign assets). An episode of resistance to appreciation is when the government depreciates the real exchange relative to the undistorted level by purchasing reserves.Definition 2. There is resistance to real exchange rate appreciation between time 0 and time t if:• The government closes the capital account between time 0 and time t.• The government accumulates more reserves than in the undistorted equilibrium while the capital account is closed: for 0 < s ≤ t.• The initial real exchange rate is depreciated relative to its undistorted value: .The difference is a measure of the initial real exchange rate undervaluation. Note that the resistance to appreciation is assumed to last a finite time t, after which there is free capital mobility and Ricardian equivalence applies. After time t, the economy follows its undistorted path conditional on the init

We highlight the difference between the service sector and the manufacturing sector in regard to the determinants for a firm to start foreign direct investment (FDI) and the resulting productivity growth. This paper analyzes two questions: (1) whether a certain level of initial productivity explains a firm's choice and (2) how the productivity of such a multinational firm changes over time after FDI. Using the longitudinal panel data on Japanese firms from 1980 to 2005, we trace firm-level decisions over decades. We find that the total factor productivity (TFP) does not explain a firm's choice for starting FDI in manufacturing, but it does in service sector. In contrast, the size and the profitability of firms motivate their FDI in the manufacturing sector, but these do not matter in the service sector. In addition, after FDI, we observe 1.3% annual growth rates of TFP in service, whereas firms in manufacturing show only 0.9% growth rates. To eliminate the selection bias, each multinational firm is paired with domestic firm(s) with similar ex-ante characteristics in the same industry.

Cross-country evidence indicates that Japan hosts little inward foreign direct investment (FDI), even after taking into account its size and geographical or cultural distance from potential investors. Hoshi (2018) is a judicious empirical assessment of the impact of Abenomics on Japan's ability to attract inward FDI, and, by extension, increase the nation's rate of economic growth. Hoshi reaches a skeptical conclusion as to whether Abenomics has contributed to increasing inward FDI. The Abenomics target goal for FDI may be attained, but according to Hoshi's analysis, the goal has been set too low and its achievement does not require any positive impact of Abenomics policies. That skepticism may well be justified. However, before accepting this conclusion it may be worth making the simple observation that insufficient time may have elapsed for the effects of Abenomics to manifest. The policy initiative was first announced in 2013, but some of the measures discussed in the present paper were introduced as recently as May 2016. It is possible that Abenomics will eventually work as intended, but it is just too early to tell. Hoshi correctly observes that from a theoretical perspective the impact of inward FDI flows on growth is ambiguous and the empirical literature generally concludes that inward FDI flows are only growth-enhancing conditional on financial sector development and outward orientation. The latter is particularly important, insofar as a plausible theoretical example of immiserizing capital inflows is FDI induced into a protected capital-intensive import-competing sector (Bhagwati & Srinivasan, 1983). The samples used by much of the empirical literature cited by Hoshi include developing countries where capital inflows into a protected sector of comparative disadvantage is a real problem, or are restricted to FDI into the manufacturing sector. Therefore, it is not evident that this cross-country evidence is entirely applicable to Japan. While exchange in differentiated products is pervasive in modern economies, one would not necessarily expect Japan to gain a lot from foreign investment in its dominant sector either directly or via interfirm externalities and spillovers. Yet even in this relatively inauspicious setting, analysis of firm-level Japanese data indicates that there are significant benefits to foreign investment in the manufacturing sector. The positive result for manufacturing suggests that the gains for Japan from investment in its lagging service sector, which has traditionally been sheltered via regulation from entry by either new domestic or foreign service providers, could be even more profound (Fukao, 2013). It is partly due to this lack of local presence by foreign service providers that historically Japan has been a dramatic outlier relative to other major industrial countries in the share of domestic sales accounted for by foreign firms (Bergsten & Noland, 1993). Given the relatively scant presence in Japan of foreign service providers, and Japan's evident competitive challenges in the service sector, increased inward FDI in the service sector could have a significant impact on domestic productivity, and, at least during a transitional period, the economic growth rate, thus fulfilling the promise of Abenomics. So, how could Abenomics increase FDI into Japan? Discouragingly, many of the robust correlates with inward FDI identified in Hoshi's paper such as physical and cultural remoteness, and parent gross domestic product (GDP) and per capita GDP, are exogenous and not susceptible to policy intervention. And even more discouragingly, there appears to be a disconnect between the conditions amenable to policy intervention that might promote FDI and what the government is doing. One approach could be a sharper, if not targeted, approach to inward FDI which would emphasize the removal of barriers to entry in the service sector. A government survey summarized in Hoshi (2018, Table 1) found that the "high cost of doing business" was the single most frequent complaint, with three-quarters of the respondents identifying it as a barrier to FDI. Apart from regulation, capital and labor market imperfections could be important. Addressing labor market policies that discourage interfirm labor mobility appear to be particularly salient. It is striking that among the factors inhibiting FDI into Japan listed in Hoshi's Table 1, "difficulty in securing personnel" is the only one that increased significantly between the 2012 and 2016 surveys, rising more than 10% points to 46%, indicating that the problem is both important and worsening. Such an approach of addressing basic factor market and regulatory inhibitions on business, would not only benefit potential foreign entrants, but could also contribute to revitalizing domestic entrepreneurship by making it easier to establish – and expand – vibrant new businesses (Noland, 2007), precisely the sort of structural change that the third arrow of Abenomics is supposed to promote.

The study aims to determine the principal motives of inward foreign direct investment, by foreign multinational companies, in India. The study also seeks to ascertain if the motives of inward foreign investment of multinational firms differed between the manufacturing sector and the services sector. The paper employed a survey approach, to collect data about the motives and benefits of inward foreign direct investment, in India. Statistical tools, like confirmatory factor analysis, independent sample t-test, were used. The study identified that the market-seeking, resource-seeking, and efficiency-seeking motives differed significantly between the manufacturing sector and service sector firms. However, the study concluded that the strategic asset-seeking motive of foreign direct investment, in India, was not significant.

We use disaggregated data by country and industry to empirically analyze the host country determinants of Chinese outward foreign direct investment (FDI) for the years 2003 to 2011. Our results suggest that the host-country determinants of Chinese FDI differ between high- and low-income countries. While all Chinese FDI is invariably market seeking, other motivations stand out for differing sectors in specific country groups. The resource seeking motivation is relevant for manufacturing FDI to high-income countries with relatively high fuel abundance, and to low-income countries with primary resource abundance (other than fuels). Differently, the strategic-asset seeking motivation, measured by the level of R&D spending on GDP, only positively and significantly affects Chinese manufacturing and service FDI to OECD countries, while higher education levels are an attraction factor for all investing firms. Natural resource is an important attraction factor for Chinese FDI, not only in resource-related sectors, but also in manufacturing and service sectors. Finally, Chinese FDI tends to follow exports (rather than foster them), especially in service sectors.

The focus of this study is to examine the differential impacts of economic volatility and governance on the flows of US manufacturing and non-manufacturing foreign direct investment (FDI) into African economies. A Generalized Autoregressive Heteroscedastic (GARCH) model is used to generate economic volatility indicators for each sample country. Different governance indices have also been used to test the robustness of the findings. The results of the study show that the influence of economic volatility and governance on aggregate US FDI is weak. For the flows of US manufacturing FDI, effects of economic volatility are undetectable; for this sub-sector, investor confidence, government policy commitment, and availability of labor stand out as major determinants. For US non-manufacturing FDI, however, both economic volatilities and governance have significant effects, although only when economic volatilities occur together with bad governance and high debt burden. Other economic factors, such as trade links between host countries and the US, and between host countries and the rest of the world, also boost the flows of both manufacturing and non-manufacturing US FDI in African economies.

This paper analyzes the impact of corruption on foreign direct investment (FDI) in the Portuguese-speaking African countries (PALOP) economies between 2006 and 2018. The focus lies on Angola, Cape Verde, Guinea-Bissau, and Mozambique since, according to Transparency International, they exhibit intermediate to low levels on the Corruption Perceptions Index. Despite sharing historical and cultural ties, as former Portuguese colonies, no research has focused on the impact of corruption on FDI in the PALOP economies, to the best of our knowledge. To accomplish this, we use an Instrumental Variables Fractional Probit Regression applied to data from the World Bank Enterprise Surveys, which gather information for 2180 firms. The results show that, on average, corruption does not significantly affect FDI in PALOP economies. Trade, credit, and firm size emerge as key FDI determinants, while investment levels and tax rates are not relevant. Corruption has negligible effects on FDI in manufacturing but boosts FDI in services. Interestingly, while corruption has no significant effect on FDI for small and medium firms, a positive, significant impact is revealed for large firms. Finally, corruption’s overall FDI impact is the same across PALOP countries, except in Angola, where it negatively influences FDI compared to Mozambique.

International rules on foreign investment in trade agreements came from two sets of disciplines. Investment chapters are the obvious source of rules on foreign investment. In addition, chapters on trade in services, especially those following the GATS structure, feature rules on foreign direct investment (FDI) in the services sector. The chapter focuses on disciplines in 'trade in services' and their relation to FDI. In particular, it assesses the relationship between the concepts of FDI and trade in services, reviews the scope of main disciplines in services and investment chapters in trade agreements, and brings attention to potential legal conflicts between them. Finally, it considers potential implications of this relationship in dispute resolution by considering how investment disputes in services would be considered at the dispute settlement mechanism of the WTO, and how a trade in services dispute would be viewed in investment arbitration.